Thursday, September 16, 1999 Published at 09:20 GMT 10:20 UKBusiness: The EconomyGood times back on the High StreetShoppers returned to the high street following interest rate cutsUK retail sales rose at an annual ratae of 3.4% in August, suggesting that the recovery is well underway.

Sales rose by a better-than-expected 0.8% from July, and the government statistics office says that a firm upward trend is now clearly established.

There were substantial rises in textile, clothing and
footwear sales and in household goods, showing consumers were spending in response to a rash of interest rate cuts by the Bank of England earlier this year.

The figures leave sales 3.6% up on a year ago.

The Office for National Statistics also said public finances were in better shape than had been forecast, with a public sector net cash requirement last month of just £0.2bn, against forecasts of £1.5bn.

No inflation fear

The ONS said the latest data confirm that the underlying rate of growth has picked up in recent months.

With the exception of July, the three-month growth rate was at its highest level in August since February 1998, while the three-month-on-a-year-earlier rate was at its highest level since May 1998.

Based on non-seasonally-adjusted data, the average weekly value of retail sales in August was £3.72bn.

Economist Neil Parker of the Royal Bank of Scotland said: "We would suggest that the pick up in sales volumes is due to the prolonged period of price discounting and thus at the expense of profit margins. Thus the sales data do not necessarily suggest that inflation is set to pick up markedly."